Contactless is great but the future of mobile payments lies elsewhere

In this guest post, Dennis Jones, CEO of mobile payments provider Judo Payments, argues the future of payments does not lie with contactless but with mobile, driven by in-app payments.

The widespread introduction of contactless cards was the first significant evolution in payment technologies since Chip-and-Pin in 2004. But it was just that – an evolution. Little had in fact changed. Customers still used cards at point of sale and even now contactless is only used for transactions of £30 or less.

What has changed is that contactless has arguably boosted our move towards a cashless society. Consumers now expect to be able to pay for even small value items using plastic. It follows that, to gain and retain customers, every retailer has to accept cards.

‘The future of payments is not in tap, it’s in app’

And now payments are going mobile. With the launch of Android Pay, mobile payment facilities have been opened up to millions more consumers. For most retailers, all this means is a change in the item used to tap and go. Where once a card was presented at point of sale, now it’s the phone. But going mobile from a payments perspective brings so much more to retailers if they just think about the possibilities.

Because the future of payments is not in tap, it’s in app.

Critics of native apps will claim that marketing them to consumers is a zero sum game. Most mobile users are loyal to between four and 10 apps on one device. The majority of smartphone users don’t download any new apps in any given month.

Essentially, it all comes down to a problem of design. All too often, branded apps are just an extension of the mobile website. There is no mobile-specific utility. Seamless in-app payments changes that landscape.

Apps have potential to revolutionise

The current core use case for in-app mobile payments is in transportation and food service. Apps like Uber were designed to solve a particular problem – matching taxi supply and demand. Integrating payments in app makes the whole experience painless. There’s no switching between screens, no spinning wheel of death.

But in-app payments removes more barriers than just the inconvenience of typing out card numbers or switching between screens. It has the potential to revolutionise the customer experience as a whole.

Most bricks and mortar businesses aren’t traditional ecommerce businesses but they’re moving towards what engaging commerce should be. It should be possible in food and beverage outlets just to order ahead and pay in app. No more queuing. Order your coffee, pick it up and go.

Changing the customer experience also has financial ramifications for the retailer. We won’t see the disappearance of payment terminals overnight but this is the way the world is going. In fact, in the short term as mobile payments adoption is driven primarily by Apple and Android Pay, we will see a brief uptick in new terminal installations as retailers upgrade to accommodate the growing volume of contactless payments.

We are nearing the point of saturation

Take the changes in the digital camera market as a parallel. As the smartphone launched, sales in digital cameras took off despite the presence of a camera facility on the phone. Users realised that they wanted digital photography but of a better quality than the phone could provide and costs of cameras had also dropped. But then the smartphone got better and sales of digital cameras fell off completely. The card terminal is going to go the same way. We are nearly at a point of saturation with mobile phones. As businesses begin to reinvent themselves and the concept of queuing to pay becomes outdated, so to the terminal will fall into obsolescence.

Barriers to consumer behaviour change are always high. But when an app solves a clear problem, adoption is swift. Uber’s rapid dominance of the taxi market has caused customer expectations to change. They are being trained to expect an Uber-type payment experience wherever they go.

The transition won’t be without its challenges. Security is always front of mind for customers and retailers will have to make sure they focus on detecting and preventing fraud while generating consumer confidence in their systems. A sloppy page hits confidence. It all starts with good design.

Equally, dispensing with point of sale terminals will eventually generate big cost savings for retailers. But they will initially find themselves paying more as they increase their exposure to contactless as well as investing in app payments to run simultaneously.

Must start experimenting with mobile payments

Retailers can’t afford to wait and see. It’s critical all businesses start experimenting with mobile payments today because there’s a next generation for whom it is their go-to method of payment and if brands miss connecting with them today, they won’t get them back in the future.

But in the not too distant future (between two to five years) we are going to see the costs go down.

This will be most impactful for the SME sector, whose five-year terminal leasing contracts see them tied to a £2,000 outlay per terminal. Switching to running the software on a tablet, linked to a cloud-based service will generate significant savings for them.

The revolution is coming and like many of today’s disruptions, it’s driven by mobile. But it’s not just a payment revolution. This is going to fundamentally change the retail experience as we know it.